“When you leave your current employer, they will send you a check for your fully vested 401k retirement savings that you have accumulated. This is treated as a cash out transaction and your employer will be required to withhold a 20% tax amount, leaving you with only 80% of your cash. This is NOT what you want to do! Furthermore, you will be required to pay a 10% early withdrawal penalty if you are under the age of 55 and withdraw your 401k retirement savings as cash.

To avoid this cash out transaction, you must arrange for a Direct 401k rollover. Also known as a trustee to trustee 401k rollover, this rollover will instruct your old employer to make out a check in the name of your new 401k plan manager or “custodian” as they call it. This way, you will not be getting any cash. Your 401k funds will be sent to your new 401k custodian. Ask your new 401k custodian exactly how they want to receive this payment. Usually it will be like “Investment Banking Corporation, for the benefit of Peter James…”
Source: http://www.401klookup.com/rollovers-401k.html

The next step after this will be to inform your former employer’s retirement plan admin that you are making a direct rollover of your funds to your new account. The admin will ask how you want this check to be styled & printed. As soon as you receive the check, you should deposit it into your new IRA. There is a 60 day limit within which you must deposit this check to your new IRA or 401k, otherwise you will be charged tax on it, as well as a 10% early withdrawal penalty.”

I left some money in a 401K plan after I left an employer and then the company almost went out of business. Even though, the money in the plan was invested at a bank, the company has to approve any transfers. In my research on the Internet I read a lot of horror stories from people trying to recover their 401K savings. Luckily I got mine out in time.

When I left my last employer, they shorted me just under $900 on the roll-over. They said I wasn’t vested for that amount, which was inaccurate. Two years later, I’m still getting statements and my $845 is still stuck in their plan. I may have to file a complaint just to get the rest of my money.

Also, if you are married and live in a community property state, you will need to get your spouse to sign and you will have to have it notarized.

So, my advice is to handle the roll-over soon after leaving an employer and take control of your own retirement savings.

BTW, I also rolled-over to Etrade and they are great.

Bret Frohlich
www.bretfrohlich.com